valehistorybook5

1967
1931
1944
CHAPTER 5
The Biggest Iron Ore Exporter in the World
5.1 An adventure in the Amazon
“You can send us the snakebite serum.”
The telegram on the desk of American geologist Gene Tolbert,1
in Rio de Janeiro, was short and incredibly promising. Snakebite
serum, in this case, had nothing to do with snakes – it was the code
used among geologists at Companhia Meridional de Mineração,
the Brazilian arm of American giant US Steel, to announce the
discovery of a major deposit. The telegram was sent from Belém
by Breno dos Santos, also a geologist, and the cryptic message
served to protect against the spying that went on between the
mining companies scouring northern Brazil in search of riches.
There were no snakes, but there was manganese, and above all, a
spectacular amount of iron. Gold, silver, copper, bauxite and zinc,
as well as nickel, chromium, tin and tungsten would also be found
in due course.
Breno was 27 years old. He was a recently qualified geologist
who had accepted – more through lack of options than idealism – a
job at Companhia Meridional de Mineração, which was looking for
manganese in the Amazon. It was an adventure in every sense. It
wasn’t an easy job: the salary wasn’t great, the food was terrible,
there were mosquitoes everywhere, and there were few geologists
around. The indigenous peoples (Assurini2 and Xikrin3) were not
very friendly and, worst of all, Breno often had to fly over the jungle
in very unreliable helicopters.
It was on one of these flights, on July 11, 1967, on board a red
helicopter with room for two passengers, that the history of mining
in Brazil (and the world) began to change. Since then, Carajás4 –
named for the tribe that lived on the banks of the Araguaia River
– has been synonymous with iron ore.
In the mid-1960s, the Amazon region was being mapped by large
American companies looking for electrolytic manganese, essential
for the manufacture of batteries. The recommended location was the
Sereno Mountains, known as the “Serra Rica” (“Rich Mountains”). In
geological jargon, there is a saying that “You only look for elephants
where there are elephants.” Pará – where enormous manganese
deposits had already been found near Marabá – was the “elephant”
of the moment.
The strategy adopted by mining companies was to plot routes
starting from Belém, and crossing to Santarém and Altamira.
Initially, Breno’s team, led by Gene Tolbert, was going to be based in
Altamira, but Union Carbide, US Steel’s main competitor, discovered
its plans and got there first. The solution found was to create an
alternative route via Marabá, where camps were set up around the
2 - According to geologist Breno dos Santos in an interview given to Vale, while flying over
an indigenous village as part of a prospecting flight over the Xingu River, he saw the untilthen unknown Assurini tribe. “The Indians came out running and we found out later that
the village didn’t yet have any contact with civilization. They only became acquainted
with Western culture when the Trans-Amazon Highway was built,” he explained.
3 - The Xikrin do Cateté people belong to the Kayapó group (their language is also Kayapó)
1 - Gene Edward Tolbert was born in Kansas, USA in 1925, and died in October 1989 in
Virginia, USA. He served in the American Air Force during the Second World War. He
moved to Washington in 1949 to work for the United States Geological Survey (USGS). He
arrived in Brazil in the early 1950s, where he completed his doctoral thesis, The Geology
of Raposos Gold Mine, Nova Lima, presented at Harvard University in 1956. In Brazil, he
worked on a zirconium and uranium mineral project in Poços de Caldas, Minas Gerais.
He was invited by the USGS to work as a professor of Economic Geology at the University
of São Paulo (USP), where he lectured from 1957 to 1961. He ran the Brazilian office of US
Steel at the time of the discoveries of the Carajás mineral deposits. See Gomes, Celso de
Barros. Geologia Usp: 50 Anos. São Paulo: Editora da Universidade de São Paulo/Instituto de
Geociências da USP, 2007, p. 67, 181-182.
Vale
Our History
and they live on the banks of the Cateté River, a tributary of the Itacaiúnas River, between
Água Azul do Norte and Parauapebas, in the Carajás Mountains of Pará. See Enciclopédia
Povos Indígenas do Brasil. Available at: <http://pib.socioambiental.org/pt/povo/xikrinkayapo/1630>.
4 - Carajá or Karajá is the name of the indigenous group of people occupying the broad
strip between the Araguaia River valley and the island of Bananal in what is now the
state of Tocantins, near its borders with Pará, Goiás and Mato Grosso. Karajá is actually a
Tupi word meaning “big monkey.” In their own language, they call themselves “iny” (“we”).
The Karajá family belongs to the Macro-Jê linguistic branch, and is divided into three
languages: Karajá, Javaé and Xambioá. See Enciclopédia Povos Indígenas do Brasil. Available
at: <http://pib.socioambiental.org/pt/povo/karaja/364>.
Vale
Our History
137
Previous page: men crossing
the Itacaiunas River in Pará
by canoe on August 11, 1967.
138
139
Above: members of the Xikrin
indigenous people pose for a
photograph on July 22, 1967.
Below: geologist Breno dos
Santos on December 17, 1967.
Vale
Our History
Team of geologists on a helicopter flight
over the Itacaiunas River in Pará in 1967.
Vale
Our History
Previous page, left to right:
camp on Buritirama, an
island in the Itacaiunas
River in Pará, in 1967.
Aerial view of Marabá,
Pará, on July 25, 1967.
140
city, in places with precarious landing strips cleared alongside nut
and rubber plantations.
From his camp, Breno and his team members would leave
on short explorative flights.5 The geologist called his team “the
Incredible Army of Brancaleone,” in reference to the movie by Mário
Monicelli that tells the story of a hapless group of soldiers who
try to conquer a kingdom of dreams in medieval Europe. Breno’s
reference made sense. The kingdom idealized by the Brancaleone of
the Amazon was initially a whitish clearing, covered with stunted
plants known by the local people as “canelas de ema” (“emu shins”)
– but the location was an El Dorado of iron.
“The clearing was enormous, and there was low undergrowth
around, which normally characterizes a ‘canga,’ meaning a region
rich in ore very close to the surface, impeding the growth of trees.
When I knocked in my hammer, a red substance came out, and I
saw it wasn’t manganese – it was iron. I thought: ‘Wow! Everything
here is iron!’” recounts Breno. The geologist had already seen
similar clearings on previous flights, and was starting to think that
everything was part of an immense mineral reserve, of a kind that
had never before been discovered on the planet.
“I had been working as a geologist for a short time, I was
enthusiastic about my discovery, but at the same time I was
afraid I could be making a very embarrassing mistake.” But it was
no mistake: Breno had discovered 17 billion metric tons of highgrade iron – and as of 1984 (after a lot of research, legal disputes,
technological adventures, heroism, political battles, and enterprise),
it would lead to a new stage in Vale’s history.
5 - The team that discovered Carajás was organized into four units. The first, belonging to
Meridional, was composed of chief geologist Gene E. Tolbert, and geologists E. C. Ferreira,
G. C. Machamer, R. Strong and C. D. Reynolds. The second group monitored research in
Rio de Janeiro: Francisco Sayão Lobato, mining engineer and consultant; and Jean Robert
Maligo, administrative assistant. The third unit was the field team: Breno A. dos Santos,
geologist and head of the team; João E. Ritter, geologist; Erasto B. de Almeida, geologist; Noé
D. dos Santos, field administrator; C. Marbus, draftsman; Feliciano T. Tenório, supervisor;
Francisco Gadelha and Francisco Braga, foremen; and 10 other employees. Finally, the aerial
support group was composed of Adão Coelho de Barros, autonomous pilot; and José M. de
Aguiar, Carlos A. A. Ratto and Leno A. Compasso, helicopter pilots (working for Helitec).
Vale
Our History
5.2 Vale becomes the global iron ore leader
141
In the late 1960s,6 Companhia Vale do Rio Doce’s commercial
prospects were excellent. In 1968, the company signed its first longand medium-term contracts to supply iron ore to Usinor, a French
state-owned steel company (for 10 years), and Italian steelmakers
(for three years). Also in 1968, CVRD signed its third contract with
seven steel companies in Japan, involving the supply of 2.8 million
metric tons of iron per year, for eight years starting in 1971 – a
decisive step in strengthening its presence in the Japanese market.
This deal shocked the Australian iron producers, who thought their
position in Japan was assured, given their geographical proximity.
Benefiting from the global steelmaking boom that began in 1969,
CVRD exported 21.8 million metric tons of ore in 1970 (an increase of
nearly 100% in relation to 1968), bringing in around US$160 million
of revenue to the country. Japan bought practically one-third of this
total – which included, for the first time, 750,000 metric tons of
pellets. As of 1969, Japan had overtaken West Germany to become
CVRD’s biggest customer.
By the end of 1970, the company’s long-term sales commitments
amounted to 324 million metric tons of run-of-mine ore and pellets,
destined for customers in various countries. In the same year,
Vale renewed its agreements, made in 1962 and 1964 with Samitri
and Ferteco, respectively, involving the use of its railroad and
port facilities to transport iron ore produced by these two foreign
companies in the Iron Quadrangle region.
However, the seesaw of global steel production continued
with its ups and downs. The boom of 1969-1970 was followed by
a slowdown for two years. Even so, in 1972 the company exported
26.1 million metric tons of iron ore and pellets. The following year,
as the steel industry heated up once more, the company’s sales
6 - This section of text is based on Fernandes, Francisco do Rego (org.), Os maiores
Ship being loaded with
ore at Tubarão Maritime
Terminal in Espírito Santo.
mineradores do Brasil: perfil empresarial do setor mineral brasileiro, vol. 1, pp. 3-7, 32-33, 60-62
and 93-96: Board of Directors’ Reports, 1968-1978, and Kury, Mário da Gama, A Companhia Vale
do Rio Doce: 40 anos, op. cit., pp. 70-96.
Vale
Our History
CVRD president Raymundo Pereira
Mascarenhas (on the right) and
Eximbank executives during a signing
ceremony for loans to the company,
in the United States in 1970.
142
Raymundo Mascarenhas
Raymundo Mascarenhas (Prado, Bahia, 1928 – Linhares,
Espírito Santo, 1987) 1 joined the company in 1957, and 12
years later became its president – the second in-house
employee to occupy this position. During his career, he
led Docenave and was the general superintendent of
sales. His experience in the latter function became the
hallmark of his administration, when the company’s
exports rose from 11.550 million metric tons in 1968,
to 16.056 million metric tons in 1974. 2 This increase in
sales was also linked to the development of a new export
product for CVRD: pig iron produced in Minas Gerais.
In 1974, the last year of his first term, he founded
Celulose Nipo-Brasileira (Cenibra) in partnership with
Japanese investors. In the same year, Vale became the
world’s biggest iron ore exporter.
After leaving CVRD’s presidency, Mascarenhas – a
qualified engineer who graduated from the Polytechnic
School of Bahia – was appointed to run Companhia Bozano,
Simonsen Comércio e Indústria, where he remained until
1983. The following year, he returned to CVRD as its
commercial director. In May 1985, he was appointed Eliezer
Batista’s vice-president and, in April of the following year,
he served once again as the company’s president.
in the international market skyrocketed, reaching a total of 37.5
million metric tons. Continuing with its policy of entering new
markets, CVRD began supplying iron ore to China, Scotland and
East Germany, and reestablished sales to Romania and Yugoslavia.
In 1973, the company’s long-term commitments to supply iron
ore amounted to 402 million metric tons, reserved for customers
in West Germany, Argentina, Austria, Spain, the USA, France, The
Netherlands, England, Italy, Japan, Poland and Turkey.
At the end of 1974, despite the first signs of a new downturn in
global steelmaking arising from the oil crisis of the previous year,7
CVRD celebrated a new record for exports: 46.2 million metric
tons of iron ore and pellets – equivalent to 81% of Brazil’s mineral
exports and 5.5% of the country’s total exports.
A new factor in this period was an upturn in sales to the United
States, which rose by 88% between 1973 and 1974. This was because
the American government had suspended operations at the Reserve
Mining Company’s pelletizing complex due to its pollution record.
In 1974, CVRD signed long-term contracts with customers in the
USA, Romania, Poland and East Germany, involving around 70
million metric tons of ore.
Despite adverse conditions on the international market,
aggravated by a deepening crisis in the steel industry, CVRD ended
1975 with very positive results. Modest growth in its physical
volume of exports (up 3.5% from the previous year) was outweighed
by a 36% rise in their value, due to an increase in the ore price (from
US$9.74 to US$12.92 per metric ton). The company was now the
world’s biggest exporter of iron ore, accounting for 16% of seaborne
trade in the product.8
7 - The crisis in the steel industry was not a mere reflection of the global economic
1 - About this subject, see “Mascarenhas, Raimundo,” DHBB, vol. 3, pp. 3,6253,626 and “Conheça todos os presidentes da história da Vale” (Learn about all the
presidents in Vale’s history), Exame magazine, April 5, 2011.
8 - In 1975, Brazil, Australia, Sweden and Canada, together, were responsible for 64% of the
seaborne trade in iron ore.
2 - See Table 1.
Vale
recession. Excess capacity, cost pressures and protectionism were other factors that
contributed decisively to the weak performance of steelmaking powers and the
geographical displacement of steel production to emerging countries, including Brazil
itself, as well as Argentina, Mexico, Iran, Iraq, South Korea and the Philippines. See the
Board of Directors’ Report, 1977, n.p.
Our History
A summary of CVRD’s performance in the first half of the 1970s
makes clear how important this period was to the company’s
history. Between 1970 and 1975, the volume of ore it exported rose
by 116%, and the average price per metric ton increased by 77%,9
resulting in growth in export revenue of around 285%, from US$160
million to US$615 million. The start of the 1970s saw advances in
the international division of labor, a process in which developed
countries invested heavily in emerging countries such as Brazil in
sectors that directly or indirectly made intensive use of natural
resources. This included the development of projects with intensive
power consumption, especially in sectors with major environmental
impacts, such as mining and pulp.
“Go ahead, Brazil!”
In 1976, CVRD’s export volumes stayed at practically the same level
as in 1975. However, thanks to a further rise in the average price of
ore, which reached US$15.15 per metric ton, the company received
export revenues of around US$717 million. CVRD was now the biggest
contributor to Brazil’s trade balance. To maintain this position,
though, government intervention was increasingly necessary.
General Ernesto Geisel became president of Brazil in March 1974,
succeeding General Emílio Garrastazu Médici, who was known for
his overall control of spending and political intolerance. Geisel’s
government, which lasted until 1979, was marked by the start of
the “political opening” process in the country. In the economic field,
the president invested in infrastructure, signing a controversial
nuclear agreement with Germany and allocating large sums of
money to build the Itaipu hydroelectric power project. During his
administration – and in particular, together with the Minister of
Mines and Energy, Shigeaki Ueki – mining was treated as a matter of
state. This would be perceived in the outcome of the legal deadlock
between CVRD and US Steel concerning the Carajás Iron Project in
1976, and in the approach to foreign trade in iron ore.
President Geisel’s visit to Japan in mid-1976 reanimated CVRD’s
commercial prospects. The company’s second and third long-term
sales contracts with Japanese steel mills, due to expire in 1978, were
renewed, involving the supply of 5.7 million metric tons per year of
iron ore for 15 years. In addition to these deals, a fifth contract was
signed, involving annual sales of 6.5 million metric tons of iron ore
and 6 million metric tons of pellets for 15 years.
If the future seemed guaranteed – thanks to the long-term
contracts with Japanese steel companies – the present was not yet
assured. In 1977, for the first time since 1948 (at the height of the postwar crisis), Vale’s performance went into reverse. Its exports fell by
14% in relation to the previous year, from 47.3 to 39.8 million metric
tons. On top of lower volumes and export revenues, and despite the
fact that the average iron ore price reached US$15.51 per metric
ton, rising operating costs and a stronger cruzeiro contributed to
a significant fall in the company’s profits. The combination of an
appreciation in Brazil’s currency and a falling average iron ore
price would subsequently be experienced at various moments, with
adverse effects for the company’s financial status.
Faced with the steel industry crisis in the main capitalist
economies, CVRD sought new customers in developing countries
that were seeing some growth in their steel production. In 1977,
the company signed its first long-term contracts with mills in Iraq,
Qatar, South Korea, Indonesia and the Philippines. At the end of
the year, its supply contracts involved future commitments for
609 million metric tons – more than half represented by the Asian
market (316 million metric tons), and the rest accounted for by
Western Europe (200 million metric tons), Eastern Europe (55.5
million metric tons) and the Americas (38.2 million metric tons). It
was now selling to 63 customers in 26 countries.
In 1978, there was a slight recovery in CVRD’s sales on the
international market (to 41.9 million metric tons). New contracts
were signed with China (to supply 250,000 metric tons on a trial
basis, followed by 4 million metric tons between 1979 and 1980), 10
Poland, Argentina (sale of pellets for five years), Czechoslovakia,
Portugal (a five-year extension of an iron ore sales contract) and
France (an extension of CVRD’s contract with Usinor, again, for
five years).
Also during 1978, Japan, despite 30% of its steelmaking capacity
being idle, resumed its customary pace of purchases from CVRD. A
new feature was the inclusion of a “flexibility clause” in contracts,
giving Japanese steel companies more freedom to change their
volume of imports beyond the existing margin of 10%.
10 - Given the limited capacity of China’s ports, CVRD made an agreement with Kawasaki
9 - In 1970, the average price for one metric ton of iron ore was US$7.30, rising to US$8.08
in 1973, US$9.74 in 1974 and US$12.92 in 1975. See Abranches, Sérgio and Dain, Sulamis, A
empresa estatal no Brasil, 1978, p. 71.
Steel to permit Brazilian ore transported on Docenave’s large ships to be unloaded at
its port facilities on the island of Mindanao, in the Philippines, where the Chinese could
transfer it onto their small ships. In exchange, Petrobras imported Chinese oil.
Vale
Our History
143
Table 1 shows the movements in CVRD’s sales of iron ore and
pellets on the global market between 1968 and 1974, broken down
by consuming country, including the quantity purchased annually
by each one and its share of total sales. It was necessary to produce
a separate table (Table 2) for the years 1975 to 1978 in order to
reflect a change in the criteria used in the company’s reports,
which meant that data from different countries were grouped
into major markets (Asia, Western Europe, Eastern Europe and the
Americas). In addition, the figures are more approximate for this
latter period.
TABLE 1
CVRD’S EXPORTS OF IRON ORE AND PELLETS BY CONSUMING COUNTRY, IN MILLION METRIC TONS (1968-1974)*
Italy
1,299,409
1,197,794
1,150,327
1,558,063
1,860,047
2,149,110
2,723,652
%
11.3
7.5
5.3
6.2
7.1
5.8
5.9
Yugoslavia
-
-
-
-
-
233,236
339,824
%
-
-
-
-
-
0.6
0.7
Japan
2,487,386
4,417,190
7,140,081
9,036,758
9,191,163
13,779,881
16,000,116
%
21.5
27.5
32.7
35.7
35.1
36.8
34.6
Luxembourg
2,032
153,952
191,758
290,952
39,488
135,394
244,671
%
-
1.0
0.9
1.2
0.2
0.4
0.5
COUNTRY
1968
1969
1970
1971
1972
1973
1974
Mexico
79,484
154,749
56,142
-
-
-
-
West Germany
3,217,958
4,200,317
4,397,090
5,051,822
4,944,124
6,189,613
6,314,645
%
0.7
1.0
0.3
-
-
-
-
%
27.9
26.2
20.2
20.0
18.8
16.5
13.7
Poland
73,182
134,601
318,749
269,958
201,049
442,672
507,493
East Germany
-
-
-
57,071
103,571
304,492
284,742
%
0.6
0.8
1.5
1.1
0.8
1.2
1.1
%
-
-
-
0.2
0.3
0.8
0.6
Portugal
45,835
-
-
-
-
-
-
Argentina
64,329
136,293
367,676
533,313
486,499
765,774
800,773
%
0.4
-
-
-
-
-
-
%
0.5
0.8
1.7
2.1
1.9
2.0
1.7
Romania
-
-
98,726
-
-
101,104
214,062
Austria
1,018,537
1,386,246
1,527,132
1,634,597
1,194,570
1,196,130
1,780,667
%
-
-
0.4
-
-
0.3
0.5
%
8.8
8.6
7.0
6.5
4.6
3.2
3.9
Czechoslovakia
117,945
78,777
145,448
141,481
173,750
323,133
535,542
Belgium
272,315
361,941
459,189
354,825
520,480
429,897
616,091
%
1.0
0.4
0.7
0.5
0.7
0.8
1.2
%
2.4
2.3
2.1
1.4
2.0
1.1
1.3
Turkey
-
-
26,482
248,525
287,487
262,482
178,203
-
-
0.1
1.0
1.1
0.7
0.4
144
Canada
-
2,032
-
27,723
-
374,456
448,112
%
%
-
-
-
0.1
-
1.0
1.0
TOTAL
11,550,179
16,056,537
21,800,028
25,295,215
26,178,455
37,513,272
46,213,971
China
-
-
-
-
-
46,745
53,672
%
100
100
100
100
100
100
100
%
-
-
-
-
-
0.1
0.1
Spain
82,211
185,049
1,092,247
1,121,550
1,209,244
1,296,746
1,448,202
%
0.7
1.2
5.0
4.4
4.6
3.2
3.1
Scotland
-
-
-
-
-
-
31,566
%
-
-
-
-
-
-
0.1
United States
481,067
742,672
1,313,775
1,022,850
815,731
3,093,395
5,828,709
AREA
1975
1976
1977
1978
%
4.2
4.6
6.0
4.0
3.1
8.3
12.6
Asia
18.3
18.3
17.3
15.6
France
1,098,305
1,318,957
1,639,088
1,905,371
2,373,849
2,706,693
4,086,884
Western Europe
19.6
20.4
16.2
17.9
%
9.5
8.2
7.5
7.5
9.1
7.2
8.9
Netherlands
668,736
513,441
295,833
572,786
1,015,363
1,774,552
1,352,709
Eastern Europe
1.8
3.7
3.7
4.2
%
5.8
3.2
1.4
2.3
3.9
4.7
2.9
Americas
7.6
4.9
2.6
4.2
England
541,448
1,072,526
1,580,285
1,467,570
1,762,040
1,948,210
2,423,636
TOTAL
47.3
47.3
39.8
41.9
%
4.7
6.7
7.2
5.8
6.7
5.2
5.2
Vale
Our History
* Approximate values. Sources: Board of Directors’ Reports, 1968-1974.
TABLE 2
CVRD’S EXPORTS OF IRON ORE AND PELLETS BY CONSUMING GEOGRAPHICAL AREA, IN MILLION METRIC TONS (1975-1978)
Sources: Board of Directors’ Reports, 1975-1978.
Vale
Our History
145
Vale’s excellent commercial performance
on foreign markets between 1968 and 1978
can be attributed to the company’s efforts to
adapt its maritime transport infrastructure
to its ever more ambitious export targets
146
Besides exporting its own production, CVRD, through the
Vitória-Minas Railroad (EFVM) and its port facilities, also
transported the output of Ferteco and Samitri, as described in
Chapter 4. The expansion provided through contracts signed
almost a decade earlier with these two companies generated
good results. The figures available for the years 1974 to 1978,
encompassing the exports of both companies, amounted to 33.1
million metric tons. The markets served by Samitri were Western
Europe (France, Belgium, West Germany and Luxembourg) and
North America (the United States and Canada). Ferteco’s ore was
largely sold to West Germany. In 1977, CVRD also began exporting
pellets produced by its affiliates, shipping around 500,000 metric
tons of the products. The following year, this figure rose to 1.9
million metric tons.
CVRD’s average share of Brazil’s total sales of iron ore and
pellets between 1968 and 1978 was slightly higher than in the
1961-1967 period, rising from 73.5% to 74.9%. It was not just Vale
– by far – that recorded enormous growth in its export volumes.
The three largest foreign iron miners operating in Brazil – MBR,
Samitri and Ferteco – also experienced extraordinary growth in
their foreign sales, due to the growing specialization of production
between developed and emerging countries. MBR accounted for
approximately 12% of Brazil’s iron exports during this period, while
Samitri and Ferteco each represented slightly over 5%.
CVRD’s fleet of ships and international trade
CVRD’s excellent commercial performance on foreign markets
between 1968 and 1978, especially in the early 1970s, may largely be
attributed to the company’s efforts to adapt its maritime transport
infrastructure to its ever more ambitious export targets.
In order to consider investing in the building of Docenave,
CVRD’s shipping subsidiary, its own fleet was fundamental. The
lack of efficient, coordinated logistics systems resulted in higher
operating costs, reducing the competitiveness of companies.
Investment was made in global supply chains’ logistics systems to
Vale
Our History
improve geostrategic positioning, overcoming the peripheral effect
of domestic logistics. In these systems, leadership was awarded
to the countries that had structures for planning, regulating and
investing to ensure a strategic network of logistics infrastructure,
based on production centers that continuously added value for
consumer markets.
Aware of this competitive strategy, in 1970 Docenave received
its first new ships, with total transportation capacity of 570,000
deadweight tonnage (DWT). This fleet, composed of ore-oil carriers,
was expanded in the following years, reaching a total of 15 ships in
1976, with total transportation capacity of 1.261 million DWT. This
included Docecanyon, an ore-oil carrier of 269,500 DWT, delivered by
Japanese shipyard Nippon Kokkan in 1973.
Another important measure was the renewal, in 1968, of
a contract with Petrobras by which Docenave committed to
transporting large quantities of oil from the Middle East, using
its ships returning from Japan, ensuring attractive freight costs
in both directions. Likewise, Docenave entered into an agreement
with Usiminas to transport the metallurgical coal imported by
the steel company. The practice of freight sharing (combining the
transportation of different types of cargo, in accordance with the
itinerary) would be further intensified in the coming years. The
company was improving its competitiveness while helping to
develop Brazil’s industrial system.
The sales structure that CVRD established abroad had three
main components: Itabira Eisenerz, a subsidiary succeeded by Rio
Doce Europa (RDE), founded in January 1974 and headquartered
in Brussels, responsible for selling the company’s products in
Europe, as well as importing equipment and materials from there;
Itabira International Corporation (Itaco); and Rio Doce America
(RDA), a wholly owned subsidiary of Itaco, headquartered in New
York, tasked with selling iron ore and pellets in the USA, Canada,
Mexico, and Trinidad and Tobago. CVRD’s negotiations with
Japan continued to take place directly between the company and
Japanese trading companies.
Aerial view of Tubarão
Maritime Terminal
in Espírito Santo.
Vale
Our History
Left: CVRD president Fernando
Roquete Reis giving a speech,
observed by the President of the
Republic, Ernesto Geisel. Opposite
page, left to right: a pile of iron
ore at Tubarão Maritime Terminal
in Vitória, Espírito Santo, in the
1970s. Japanese and Brazilian
flags on display in Japan indicate
Ernesto Geisel’s visit to the country
from September 15 to 21, 1976.
TABLE 3
148
149
CVRD’S DOMESTIC MARKET SALES, IN METRIC TONS (1968-1978)
Fernando Roquete Reis
As soon as General Ernesto Geisel became President
of the Republic in 1974, Fernando Roquete Reis (Belo
Horizonte, Minas Gerais, 1932 – Rio de Janeiro, 1983) 1
was appointed president of Vale. Mining in Brazil was
going through strategic changes, with a focus on
diversification and foreign trade, and Reis, who had a
solid background in economic policy (having served as
director of Brazil’s Central Bank, finance minister of
Minas Gerais State Government, and organizer of the
postgraduate Economics course at UFMG, among other
positions), seemed the right man to run the company in
its new phase. It was within Brazil’s frontiers, namely in
the Carajás Mountains, that Reis would prove that
Geisel’s choice had been wise. Reis led the entire legal
dispute involving Vale and United States Steel (partners
in Amazônia Mineração S.A.) for control of the
exploitation of the world’s biggest iron ore reserve.
As it expanded its exports, Vale also significantly increased
its sales in Brazil. Its share of the domestic iron ore market rose
from 18.3% in 1976 to 34.4% in 1978. Among the various deals
made during this period, it is worth emphasizing contracts signed
in 1973 for the long-term supply of a special type of pellet to
Usina Siderúrgica da Bahia (Usiba) and Aços Finos Piratini (in Rio
Grande do Sul), companies that were pioneering direct-reduction
steel production in Brazil.11 CVRD’s steady expansion of sales in
the country – largely to Usiminas, its biggest customer, but also
to Cosipa, CSN, Usiba and other smaller steel mills – justified the
establishment, in 1973, of Navegação Rio Doce Ltda., a Docenave
subsidiary dedicated exclusively to coastal shipping12 rather than
long-distance shipping.
Table 3 presents information on the company’s sales volumes in
Brazil between 1968 and 1978, showing the quantity purchased by
each main customer and its share of total sales, sources permitting.
11 - This process involves the production of sponge iron for immediate use in steel
production. To this end, small modules are used (each weighing an average of 400,000
metric tons), composed of pellets (60%) and lump ore (30%). When conducted on a small
scale, the direct-reduction process has a number of advantages over the use of blast
furnaces.
YEAR
SALES
CUSTOMER
1968
877,366
-
1969
1,021,674
Usiminas – 1,011,884; others (Itabira Agro-Industrial and Fertimetal) – 9,790
1970
1,163,102
Usiminas – 1,146,672; others (Itabira Agro-Industrial, Fertimetal, Ferroval, and Cobrac) – 16,430
1971
1,317,122
Usiminas – 1,305,088; others – 12,034
1972
1,876,477
Usiminas – 1,540,364; Cosipa – 76,214; CSN – 251,209; others (Usiba, Aços Finos Piratini, etc.) – 8,690
1973
2,117,225
Usiminas – 1,628,899; Cosigua – 112,306; Usiba – 19,467; CSN – 255,427; others – 101,126
1974
2,244,008
Usiminas – 1,382,149; Cosipa – 263,463; Usiba – 239,757; CSN – 106,670; others – 251,969
1975
2.8 million
-
1976
3.2 million
-
1977
5.9 million
-
1978
9.5 million*
Usiminas, Cosipa, CSN, Usiba, Aços Finos Piratini, and Cimetal
12 - Coastal shipping is also known as “cabotage,” a word named after Sebastián Caboto,
1 - About this subject, see “Reis, Fernando Antônio Roquete,” DHBB, vol. 5, pp.
4,954-4,955.
Vale
Our History
a Venetian sailor who explored the coast of North America in the 16th century in the
service of the Spanish Crown.
* Including sales of concentrate to the company’s pellet-producing affiliates. Sources: Board of Directors’ Reports, 1968-1978.
Vale
Our History
5.3 Expansion of the mine-railroad-port complex
Rising exports and new production targets demanded constant
improvements in CVRD’s mine-railroad-port complex, the structure
around which the company revolved. A large share of investment
was focused on expanding the transportation capacity of the
EFVM,13 which had practically reached saturation point, especially
after the incorporation in 1969 of a further 168 kilometers of track
by the Desembargador Drumond branch line, extending it from
Costa Lacerda to Fábrica in Minas Gerais, and establishing a link
with the Central do Brasil Railroad.
The extension of this branch line significantly increased train
movement on the railroad. Besides serving CVRD, Samitri and
Ferteco, the EFVM also transported imported metallurgical coal for
Usiminas, Acesita, Belgo-Mineira and other steel companies in the
Iron Quadrangle region.
With its new branch line, the EFVM started to function as an
export corridor for the output of small steel mills and pig iron
manufacturers located in the west of Minas Gerais. Before long,
steel products were in third place – behind iron ore and coke – in
the list of items transported by the railroad, which also included
timber, charcoal and grains, as well as passengers.14
Things were also changing at the other end of the railroad tracks,
at the port. In the late 1970s, the company began implementing
a centralized, integrated communications and traffic control
system, in order to optimize traffic capacity along the railroad with
maximum safety. Locomotive movements would be controlled from
a single dispatch center. The project also involved implementing
an automatic train car identification system and acquiring two
automatic scales to weigh moving trains.
To definitively resolve the EFVM’s overloading problem, in 1971
work began on double-tracking 548 kilometers of the main line.
150
13 - Regarding EFVM’s investments, see Board of Directors Reports, 1968-1978, and Fernandes,
Francisco do Rego (org.), op. cit., vol. 1, pp. 89-91.
14 - In 1978, the railroad carried (for CVRD and third parties) 48.7 million metric tons of
Locomotive on the VitóriaMinas Railroad (EFVM).
Vale
Our History
iron ore for export, 8.9 million metric tons of iron ore for the domestic market, 1.6 million
metric tons of coal, 1.3 million metric tons of steel, 926,000 metric tons of pig iron, 497,000
metric tons of limestone, 353,000 metric tons of oil products, 326,000 metric tons of timber,
178,000 metric tons of charcoal, and 76,000 metric tons of manganese, among other freight,
and 2.2 million passengers. See Fernandes, Francisco do Rego (org.), op. cit., vol. 1, p. 91.
This project was completed in 1977.15 Meanwhile, considerable
sums were also invested in expanding the Port of Tubarão.16 Work
at the port, executed between 1970 and 1974, included dredging the
access channel and ship-turning basin; building a new pier with
a water depth of 24 meters, capable of receiving bulk carriers of
more than 250,000 DWT, where two ship loaders would be installed;
and creating a goods yard around 500,000 m2 in area and a new
fines stockyard, built on land reclaimed from the sea using dredged
material, and sheltered by a breakwater.
By the end of the decade, the Port of Tubarão, now consisting of two
piers and a dry dock for maneuvers, and protected by a breakwater,
had an annual loading capacity of 75 million metric tons. The port’s
loading and unloading operations, totally mechanized, basically
consisted of removing ore from train cars using four car dumpers,
and then taking it by conveyor belt to its scheduled destination –
the holds of ships or one of the two stockyards.
The stockyards, equipped with three stackers, were capable of
storing 5.6 million metric tons of 10 different kinds of products.
When the time came to ship out the ore, the company used bucket
wheels to remove it from the piles and place it onto conveyor belts
leading to the piers. While the ore was being transferred onto
vessels, small samples of the product were constantly taken to
be examined at sampling stations located next to the terminal,
providing information on the cargo’s grain size and chemical
composition, to ensure that purchasers’ specifications were met.
To make any necessary corrections, alongside the quay CVRD
installed a screening plant capable of processing 12,000 metric
tons of ore per hour.
15 - This year, after installing an automatic control and signaling system on both tracks,
and based on an agreement with the Federal Railroad Network (RFFSA) and Usiminas,
CVRD began constructing a transshipment yard near Miguel Burnier Station, in order to
interconnect the EFVM (metric gauge) with the RFFSA’s Central Line (broad gauge). This
facility, completed in 1978, cut 180 kilometers off journeys between steel producers in the
region served by the EFVM and centers of consumption. Given that this route used to be
served by trucks, this interconnection also resulted in significant fuel savings.
16 - Regarding the expansion of CVRD’s port facilities, see Fernandes, Francisco do Rego
(org.), op. cit., vol. 1, pp. 91-93, and Board of Directors’ Reports, 1969-1978.
Vale
Our History
151
Aerial view of expansion
work at Tubarão Maritime
Terminal in Espírito Santo,
between 1971 and 1972.
Opposite page: the iron ore
stockyard at Tubarão.
Vale
Our History
Vale
Our History
154
155
The ship Docecanyon at
Tubarão Maritime Terminal
in Espírito Santo.
Vale
Our History
Vale
Our History
Above: a handful of pellets.
Below: Piçarrão Mine in
Nova Era, Minas Gerais,
in September 1978.
5.4 Cauê: the biggest mine in the West
in the 1970s
Back at the other end of the complex – the mines – production
also demanded new technologies, in particular to make use of
low-grade ores. In 1969, the company began constructing a plant
to recover itabirite deposits from Cauê Mine, which had until then
remained unexploited due to their lower levels of iron content. The
new Cauê Plant was designed to produce 9 million metric tons per
year of sinter feed and pellet feed (high-grade concentrates) through
the electromagnetic concentration of ore fractions smaller than 1
mm across. At the same time, in order to make full use of extracted
ores, the company began work on installing a facility next to the
mine to crush, screen and classify hematite fines, which would also
be fed with granular fractions of itabirite.
Cauê Mine has been in operation ever since CVRD was
established in 1942 – and sampling work was carried out even
earlier, in the 1920s, at the instigation of Percival Farquhar. Cauê’s
mining plan, the top priority during the company’s early years,
was explained in detail by CVRD’s first president, Israel Pinheiro,
in a speech given at the Engineering Club in August 1943: “The
facilities designed to extract, crush and transport ore, and then
load it onto the Vitória-Minas’ railroad cars, will be modern and
perfect. The initial workings will be at an altitude of 1,200 meters,
170 meters below the top of Cauê Peak. The first extraction will
take place at this level, producing an estimated 80 million metric
tons from the deposit between 1,200 and 1,370 meters of altitude.
At the 1,200-meter level, a platform will be made sufficiently large
to install initial equipment and a truck-turning area. This platform
will be the starting point for a road to go around the peak, enabling
excavation to take place by means of tunnels or directly at the
pit faces established [...] In the zone where galleries have been
made, calculations indicate a quantity of 173 million metric tons
of exportable ore of compact hematite with metallic iron content
ranging between 68% and 70%.”17
Between 1942 and 1949, the company would remove
approximately one million metric tons of compact hematite from
the mine.18 During the following decades, the Itabira region would
continue to be CVRD’s main source of high-grade iron ore. However,
as waste products accumulated, high-grade ore began to be used
up, and the company was left with deposits of lower-grade itabirite,
it was clear that the company would have to dig deeper at Cauê.
New facilities at Cauê Mine were opened in 1973, and in the same
year, CVRD began selling its output of concentrates (3.7 million
metric tons), most of which was exported. Cauê Mine – something
of a symbol of CVRD’s development – then became the biggest mine
in the West.
The year 1973 was also marked by the implementation of the
Conceição Project, to make full use of the iron ore deposits of the
mines of Conceição and Dois Córregos. The project involved the
construction of new mechanized facilities for processing ore at
both mines and a single tertiary crushing and screening unit next
to Conceição Mine, together with a dry and wet classification plant
for hematite fines, and a concentration plant for itabirite fines, both
adjacent to the mine. In all, around US$240 million was invested in
Conceição Complex, which was opened at the start of 1979. It was
capable of processing 28 million metric tons per year of itabirite and
hematite, generating 24.2 million metric tons per year of products
such as blue dust, pellet feed, sinter feed and lump ore.
It was known that performance could be greatly improved by
making use of ultrafines (until then considered a waste product)
through pelletizing. Consequently, the company decided to build
two industrial pellet plants next to the Port of Tubarão.
CVRD’s first pelletizing plant, which had a nominal production
capacity of 2 million metric tons of pellets per year, was opened
in 1969. The same year, in light of research pointing to growth in
global demand for pellets, due to their superior performance in
blast furnaces and the spread of new direct-reduction steelmaking
processes, Vale began building its second unit, designed to produce
3 million metric tons per year, which it opened in 1973.
Exhaustion of mineral deposits
All these initiatives to optimize the production of the Itabira
mines faced a serious limitation: if the pace of extraction were
to be maintained, the mines’ high-grade ore deposits would be
completely exhausted by the end of the century. It was vital for
CVRD to find new sources of minerals at once.
Over the course of the decade, this concern led CVRD to intensify
its purchases of ore from small producers in the Itabira region19
and to seek to expand its mining rights both inside and outside
18 - See Pimenta, Dermeval. Exportação de minério de ferro pelo Vale do Rio Doce. University
the Iron Quadrangle region of Minas Gerais – either by applying for
new concessions from the National Mineral Production Department
(DNPM), or by incorporating third parties’ reserves. In 1970, CVRD
acquired 520,000 metric tons of ore from small miners in Itabira,
a volume that rose progressively until reaching 6.9 million metric
tons in 1975, equivalent to 13.2% of its own production.
This policy resulted in the implementation of three projects
in Minas Gerais: the Guanhães Project, which involved iron
prospecting in the Itamarandiba region; the Porteirinha Project, to
assess and possibly exploit reserves located in the Rio Pardo region
in the north of the state; and the Piçarrão Project, to operate a mine
in the municipality of Nova Era acquired by the company in 1967.
Piçarrão Mine had estimated reserves of 20 million metric tons of
extractable ore. The Piçarrão Project included building a plant to
make sinter feed and laying a 17-kilometer railroad branch line to
connect the mine to EFVM’s station in Desembargador Drumond.20
The company expanded its frontiers in 1976 through three
acquisitions in Minas Gerais. Firstly, it bought a 99% stake in Caraça
Ferro e Aço S.A., a company that owned Caraça Mine in the Santa
Bárbara region of the state, with estimated reserves of 42 million
metric tons. Secondly, it purchased a 51% interest in Minas d’El Rey
Dom Pedro, which held the rights to mine iron and gold reserves in
Mariana. The other shareholders in this company were Gold Fields
of South Africa (30%) and a private Brazilian group called Hugo
Gouthier (19%). Thirdly, CVRD acquired mining rights to the São
Luís, Tamanduá and Almas deposits, located near Fazendão, where
the EFVM had a railroad yard.
Caraça Mine began operating in 1976, producing 1.2 million
metric tons by the end of the year. The mine’s output rose to 1.5
million metric tons in 1977, and increased further to 2 million
metric tons in 1978. Minas d’El Rey started up in 1977, and produced
800,000 metric tons in its first year. Given the lack of a railroad link
between the mine and CVRD’s network, its output was transported
by road to the Port of Rio de Janeiro. However, at the end of the
decade, given constantly rising freight costs (accounting for 70%
of export prices in 1977), CVRD decided to suspend the company’s
activities, which were considered uneconomic, maintaining its
deposits as strategic reserves.
In August 1974, after 13 years of negotiations between CVRD and
Aços Especiais de Itabira (Acesita), the two companies established
a joint venture (51% owned by CVRD), Itavale Ltda., to facilitate
the exploitation of Acesita’s Periquito and Chacrinha deposits in
the Itabira region of Minas Gerais. The shareholders’ agreement
established that CVRD would immediately begin operating
Periquito Mine through a lease, and would also be responsible for
selling the ore produced. This contract was valid for three years,
of São Paulo Polytechnic School. Geology and Metallurgy. Newsletter no. 7. Published by
Centro Moraes Rego, October 1949, p. 66.
Vale
Our History
17 - See “O Brasil e seu minério de ferro.” O Observador Econômico e Financeiro, no. 117,
19 - For figures on CVRD’s ore acquisitions year by year, see the Board of Directors’ Reports,
20 - Regarding CVRD’s new iron ore projects, see Fernandes, Francisco do Rego (org.), op.
October 1945, pp. 50 and 64.
1968-1978.
cit., vol. 1, pp. 64-73.
Vale
Our History
157
158
and it could be renewed if more time were required for Itavale to
complete studies of its reserves and produce a definitive plan to
extract them. Mining activities at the Periquito deposit began in
1976, and in its first year the mine produced 3.6 million metric tons
of iron ore, rising to 3.8 million metric tons in 1977 and 5.9 million
metric tons in 1978.
A second project aimed to develop Capanema Mine, in the
municipality of Ouro Preto, Minas Gerais, whose mining rights
belonged to the Kawasaki Steel Corporation. To proceed with the
project, a new company, Mineração Serra Geral (MSG), was set up
in October 1976, through an association between CVRD (51%) and a
group of Japanese companies led by Kawasaki Steel.21
In order to process the ore produced at Capanema Mine, in 1977
CVRD began another initiative, called the Timbopeba Project. As
well as processing ore from Capanema, this project also involved
mining and processing ore from the neighboring deposit of
Timbopeba, also in Ouro Preto. Acquired by the company in 1967,
the Timbopeba reserves contained an estimated 110 million metric
tons of hematite and 50 million metric tons of itabirite.
CVRD’s traditional mines of Cauê, Conceição and Dois Córregos,
together with the new mining operations developed elsewhere in
Minas Gerais, produced rapid growth in output in the 1970s. The
company’s set of mining operations in the Iron Quadrangle produced
390 million metric tons of ore over the course of the decade, giving
rise to various types of products. Output of pellet feed and sinter
feed grew significantly during this period, and by 1977, these
items accounted for 13.8% and 36%, respectively, of CVRD’s total
production. However, there was a decline in the company’s share of
Brazilian iron ore output, from 56.8% in 1970 to 48.3% in 1975 and
43.3% in 1978, as shown in Table 4.
CVRD’s investments to expand its mine-railroad-port complex
were to a large extent enabled by funding and loans from various
international entities, notably Eximbank, the Export Development
Corporation (EDC), Chase Manhattan Bank, Chemical Bank,
Commerzbank AG, Austrian group Vereinigte Oesterreichische Eisinund Stahlwerke Ag (VOEST), Mitsubishi Bank Ltd., Nissho-Iwai Co.
Ltd., Mitsui & Co. Ltd., and the Inter-American Development Bank
21 - Kawasaki Steel had a 24.5% stake in MSG, together with Mitsubishi Mining (5.62%),
Nomura Trading Co. (7.16%), Kawasho Corp. (4.22%), Kawatetsu Bussan Co. (2.6%), NisshoIwai Co. (1.96%), C. Itoh and Co. (1.96%), and Toyo Menka Haisha (0.98%).
Vale
Our History
(IDB). Brazilian funding agencies that lent to the company during this
period included the National Economic Development Bank (BNDE),22
Banco do Brasil, and the Minas Gerais Development Bank.
TABLE 4
159
CVRD’S IRON ORE PRODUCTION
AND ITS SHARE OF BRAZILIAN IRON ORE OUTPUT
(MILLION METRIC TONS)
YEAR
CVRD'S
PRODUCTION
BRAZILIAN
PRODUCTION
CVRD/BRAZIL
%
1968
11.830
25.123
47.1
1969*
14.875
27.157
54.8
1970*
20.654
36.381
56.8
1971*
19.749
37.486
52.7
1972*
25.043
46.471
53.8
1973*
30.304
55.020
55.1
1974*
42.675
91.488
46.6
1975
52.227
108.162
48.3
1976
49.883
107.395
46.4
1977
42.796
100.817
42.5
1978
45.000
103.896
43.3
* From 1969 to 1974, CVRD’s export volume exceeded its production level. This is
explained by its increasing use of stocks of fines accumulated by the company. Sources:
Fernandes, Francisco Rego (org.), op. cit., vol. 1, p. 176; AEB 1978, p. 418.
22 - The BNDE was established in 1952 to promote the government’s national economic
development policy. In the early 1980s, the bank incorporated the management of a new
tax associated with social issues. As a result, in 1982 the bank’s name was changed to the
National Economic and Social Development Bank (Banco Nacional de Desenvolvimento
Econômico e Social, or BNDES). See BNDES – História, available at <http://www.bndes.gov.
br/SiteBNDES/bndes/bndes_pt/Institucional/O_BNDES/A_Empresa/historia.html>.
Employees of the “Mechanized I”
unit – a system for ore crushing,
screening, conveyor belt transportation,
storage and dispatch – at Cauê
Mine in Itabira, Minas Gerais.
Vale
Our History
Left: Vale employee in front of a company
poster in the Carajás Mountains of Pará
in 1974. Opposite page, left to right:
visit by an official delegation from China,
attended by Zhao Ziyang and Eliezer
Batista; and geologist Gene Tolbert in
Carajás, Pará, on September 17, 1967.
5.5 Arriving in Carajás
160
It is said that during a visit to the Carajás Mountains in Pará, Zhao
Ziyang,23 the prime minister of China, seeing a large outcropping of
iron ore sticking out of the ground, told CVRD’s geologists: “Your
ancestors must have pleased God for him to have given you so
much. I am envious of you!” Ziyang, who was in Brazil from October
30 to November 4, 1985,24 was the second most senior official in the
Chinese government and the person responsible for the country’s
economic liberalization.
The Carajás Mountains are a set of ridges and plateaus rising to
between 300 and 400 meters above the surrounding land, reaching
altitudes of around 660 meters above sea level. Located between
the Itacaiunas and Parauapebas rivers, tributaries of the Tocantins,
the mountains are almost entirely covered with equatorial forest.
In the highest region, there are a number of small lakes that, at
first glance, might appear to indicate the presence of limestone, but
which in this case are related to iron deposits. The region also has
manganese, copper, gold, nickel and much more.
Most of the world’s metallic mineral deposits are situated in preCambrian areas, belonging to the longest period in the formation of
the Earth’s crust, which lasted from the solidification of the planet’s
surface until 570 million years ago. The physical and chemical
conditions during this period were very different from those of
today, with a much thinner crust, making it easier for metals to rise
up from the deepest parts of the Earth.
Pre-Cambrian zones cover around 40% of the Amazon. Their
volcanic-sedimentary sequences, granite intrusions, acid and
intermediate volcanic flows, alkaline-ultrabasic and basicultrabasic complexes, and sedimentary covers present the potential
for a great variety of mineral deposits. This type of formation is
conductive to the presence of concentrations of iron, manganese,
aluminum, copper, zinc, nickel, chromium, titanium, phosphates,
gold, silver, platinum, palladium, rhodium, tin, tungsten, niobium,
tantalum, zirconium, rare earth minerals, uranium and diamonds –
a veritable El Dorado of the 20th century.
In Carajás – and this continues to be confirmed as time goes on –
this concentration and variety of mineral deposits extends to levels
never before imagined. Hence the Chinese prime minister’s remark
about Brazilians having “pleased God.”25
CVRD arrived in Pará some time after geologist Breno dos
Santos first knocked his hammer into the earth on top of the
Carajás Mountains, revealing the region’s potential to the world.
Although it had made its discovery three years previously, US Steel
subsidiary Companhia Meridional de Mineração had not yet started
to exploit the area’s minerals, for various reasons. The ensuing
dispute for control of the iron ore reserves of Carajás between
the Brazilian state-owned enterprise and the American company
that discovered them constitutes an important chapter in CVRD’s
history in the 1970s.
As seen earlier, the research conducted by Companhia Meridional
in the Carajás Mountains, which resulted in the discovery of the
region’s iron-bearing potential, had the original objective of finding
new manganese reserves. Before Meridional came to the region,
Union Carbide had discovered manganese deposits in 1966 in the
Sereno Mountains, also in Pará. At first, Meridional demonstrated
no interest in its iron discovery, given that its objective was
manganese. Breno dos Santos recounts that he had to take his boss,
Gene Tolbert, to see the location of the discovery in person in order
for him to take it seriously. And then things changed.
Tolbert immediately put in a request to US Steel’s American
headquarters to send down technicians with specialist knowledge
of iron to assess the region’s capacity. From a hotel in Rio de Janeiro’s
South Zone transformed into the company’s main office in Brazil,
various applications were submitted to the DNPM for research
permits to appraise the mineral deposits found in Pará. The Carajás
Mountains began to be definitively mapped.
Although US Steel had the legal right of preference to conduct
research of the deposits it had discovered, its intention to exploit the
mineral wealth of Carajás was not viewed favorably by the Brazilian
government. Based on restrictions established in the Mining Code
on the number of prospecting licenses that a single company could
hold, the DNPM stalled the process of granting permits for the
region until mid-1969. That was when the government managed
to persuade the American company to include CVRD as majority
partner in a unified mineral research project covering an area
of 160 million hectares. The agreement was signed in April 1970,
establishing the Amazônia Mineração S.A. (AMZA) joint venture,
owned by CVRD (51%) and Companhia Meridional de Mineração
(49%). AMZA was tasked with implementing the Carajás Iron Project.
Later in 1970, AMZA began the geological surveying of its
reserves, completed in 1972, which would reveal the existence of
around 17.9 billion metric tons of ore with an average iron content
of 66.1%. Given these results, the joint venture immediately
initiated technical and financial feasibility studies for exploiting
the deposits, to be conducted by Valuec Serviços Técnicos Ltda.,26
as well as negotiations with the DNPM to obtain the right to mine
in the region.
The conclusions of these studies were presented in May 1974
and, the same year, the DNPM authorized mining operations.
Budgeted at US$930 million, the Carajás Iron Project planned
to extract 12 million metric tons of iron ore per year as of 1979,
reaching output of 50 million metric tons per year by 1985. The main
23 - Zhao Ziyang was the prime minister of China from 1980 to 1987, and secretary-general
of the Chinese Communist Party between 1987 and 1989.
Vale
Our History
24 - See Veja magazine, “Visita pioneira,” edition 896, November 6, 1985, pp. 48-53, and
25 - See Santos, Breno Augusto dos. “Recursos minerais da Amazônia,” Estudos Avançados,
Jornal da Vale. “Vale negocia com China e URSS,” no. 86, November 1985, pp. 3 and 5.
vol. 16, no. 45, May-August, São Paulo, 2002.
26 - This engineering and planning services company was established as a subsidiary of
Rio Doce Engenharia e Planejamento (RDEP), a company controlled by CVRD, and USS
Engineers & Consultants, a US Steel subsidiary.
Vale
Our History
161
162
163
Aerial view of Carajás Mine,
Pará, on January 14, 1985.
Vale
Our History
Vale
Our History
destinations for the ore would be the North American, European
and Japanese markets. To transport the ore from the mine to the
coast, an 892-kilometer railroad – the Carajás Railroad – would be
built, linking Marabá in Pará to Ponta da Madeira in São Marcos
Bay in the municipality of Itaqui, Maranhão, near São Luís. Here, a
port capable of receiving ore carriers of up to 280,000 DWT would
be constructed.
164
Joel Mendes Rennó
When he was appointed CVRD’s president in 1978, Joel
Mendes Rennó (Belo Horizonte, Minas Gerais, 1938) 1 was
already intimately familiar with the country’s mining
policy. Since 1975, he had been an advisor on strategic
affairs to the Minister of Mines and Energy, Shigeaki Ueki,
and was responsible for relations between the ministry
and state-owned companies. Rennó’s main goal as
president was to implement the Greater Carajás Project,
which in fact occurred in 1979.
A qualified engineer who graduated from the Federal
University of Itajubá, Rennó spent a relatively short time
– a little over one year – as the president of CVRD. During
his administration, he prioritized the construction of the
Carajás Railroad, which would transport iron ore from
Pará to the Port of São Luís. He was responsible for
designing and implementing the new mine-railroad-port
complex, fundamental to the development of the region
and to the company’s success. Rennó left his post in 1979,
when General João Figueiredo took over as President of
the Republic. He later served as president of Petrobras,
remaining in this position for almost seven years,
between 1992 and 1999.
1 - About this subject, see “Rennó, Joel Mendes,” DHBB, vol. 5, pp. 4,964-4,965 and
“Conheça todos os presidentes da história da Vale” (Learn about all the presidents
in Vale’s history), Exame magazine, April 5, 2011.
Vale
Our History
The environment, nationalism and controversy
Carajás Iron was no ordinary project. All stages of its development
involved money, politics, the environment, human lives, nationalism
– and a great deal of controversy. One of the most contentious
points was AMZA’s decision to build a railroad rather than using
waterways. The initial option was to make use of the Tocantins and
Itacaiunas rivers. Some sectors of society argued that implementing
a waterborne solution – involving the construction of a port in
Espadarte, at the mouth of the Pará River, near Belém – would not
only benefit communities along the rivers, but would also avoid
spending on imported locomotives, tracks and metal bridges.
The solution could be implemented by the Brazilian shipbuilding
industry, which was fully able to deliver the undertaking. Some
people even suspected that US Steel’s preference for a railroad was
the result of confidential agreements with CVRD guaranteeing the
American group the right to supply the equipment required to build
and operate the railroad.
In fact, CVRD’s preference for the railroad solution was based
not only on technical and financial considerations, but above all
on strategic factors. The Port of Espadarte would only be able to
receive small ships. At that moment, selecting Espadarte could
make it unfeasible to sell ore to Japan, which the company
then considered its priority market, thereby making the project
completely dependent on the North American market.27
The discussions concerning which transportation system should
link the mine to the port (waterway or railroad) also involved,
among other actors, the governments of Pará and Maranhão, each
one seeking to guarantee for its state the benefits arising from
the project. The issue continued to be debated until 1976, when
the federal government, through Decree 77,608, granted AMZA a
concession to build and operate the Carajás-Itaqui Railroad.
While these controversial discussions were taking place, in the
first half of 1975 the first conflicts between CVRD and US Steel
began to surface. Although the Brazilian company had a majority
interest in AMZA and appointed four of its directors, including the
president, the shareholders’ agreement signed in 1970 gave the
minority partner a veto over all strategic decisions taken by Vale.
US Steel also appointed the most important directors, including
the director of engineering, which in practice gave it management
27 - See Fernandes, Francisco do Rego (org.), op. cit., vol. 1, pp. 107-108.
By that time, it was thought that Carajás’ output, given
its excellent quality, would enable the company to meet
new demands and also serve markets already supplied
by the mines of the Doce River System, retaining the
reserves of Minas Gerais to be allocated preferentially to
support the Brazilian steel industry
control of the project. Using these powers, US Steel blocked CVRD’s
proposals to expand AMZA’s paid-up capital and delayed the start
of construction work in Carajás, alleging that conditions on the
global iron ore market were unfavorably affected by the crisis in
the steel industry in the main industrialized countries.
There then began a long and fierce dispute between the
partners for effective management and technical control of the
joint venture. CVRD’s strategy, backed by the Brazilian government,
was to exert pressure to revise key contractual clauses and bring
in other foreign partners by acquiring a part of US Steel’s stake
in the venture. An important step in the negotiations, conducted
personally by CVRD’s president, Fernando Roquette Reis, was the
approval in 1976 of a “purchase clause.” This clause established that
in the case of an irremediable disagreement about an issue of vital
interest to the majority partner, the latter would have the right to
acquire the dissenting group’s shares for a price agreed to at the
time and with a relatively flexible payment timeframe. At the same
time, CVRD managed to force the dissolution of Valuec, dominated
by the American group, and to obtain more control over AMZA’s
engineering department, which would take on the activities of the
dissolved subsidiary.
The disagreements between the two companies, aggravated
by US Steel’s refusal to abide by its ore purchase commitment,28
culminated in the official exit of the American company from
the venture in June 1977, after receiving compensation of US$50
million. CVRD then became AMZA’s sole shareholder.
CVRD’s role in ending the dispute was highlighted by Francisco
do Rego Fernandes: “CVRD negotiated in a tough, inflexible manner.
[...] Possessing basic technological knowledge of iron ore, already
accounting for around 20% of the seaborne iron ore market, and
aware of concrete proposals for external funding, for example from
the World Bank [...], CVRD considered itself to be in a comfortable
28 - Although US Steel had made a commitment to buy up to 50% of Carajás’ output, at
the time the company was negotiating to consume just 9 million metric tons per year.
position to negotiate with US Steel, which did not assure it a
considerable market share, was not injecting resources into the
project, and [...] was in a downward managerial and economic
phase, with a deteriorating financial situation.”29
The first measure taken by the “new” AMZA, now entirely
controlled by Companhia Vale do Rio Doce, was to undertake new
studies to reappraise the most appropriate production scale for the
project and verify the possibilities of rationalizing its costs, which
had already grown from the US$930 million originally budgeted in
1973 to around US$3.5 billion. These studies resulted in a new initial
production target of 20 million metric tons per year, as of 1984, rising
to 35 million in 1987. The project’s costs were reassessed at US$2.4
billion. At the same time, CVRD intensified its negotiations to find
new foreign investors, as well as external and internal funding for
the necessary construction work.
The company’s efforts to find new partners were unsuccessful.
There then followed a period of saturation in the international
iron ore market, impacted by the crisis in the steel industry.
Even the Brazilian government began to doubt the possibility of
guaranteeing, without risks, the start-up of production in Carajás.
The Minister of Mines and Energy, Shigeaki Ueki, argued that the
development of the Carajás Iron Project should be delayed until
economic conditions were favorable.
Despite these obstacles, CVRD insisted on the project’s economic
feasibility and the need to implement it immediately, based on
two arguments. Firstly, the company explained, it was impossible
to meet the steel industry’s growing demand for high-grade fines
(sinter feed) exclusively from production in the Iron Quadrangle,
whose richest reserves were running out. The use of lower-grade
29 - See Fernandes, Francisco do Rego (org.), op. cit., vol. 1, p. 110. As of November 1976,
CVRD had contributed 73.9% of AMZA’s total paid-up capital, although the joint venture’s
shareowner composition had not been modified. These share issues, fully subscribed by
CVRD, involved a special type of share, without voting rights (“D-class” shares), a solution
found by the company to enable the project to move ahead, given that the Americans
refused to continue investing while negotiations were ongoing.
Vale
Our History
165
Previous page: CVRD president
Joel Mendes Rennó (seated on the
left) at the signing ceremony for
the Albras/Alunorte agreement
in July 1978. Opposite: aerial
view of Carajás Mine, Pará, amid
the green Amazon Rainforest.
166
reserves, in turn, would require new and growing investment in
processing. Therefore, high-grade iron from Carajás would be
welcome on the international market.
Secondly, CVRD made an optimistic diagnosis of the market’s
prospects, forecasting an upturn in sales as of 1985. By that time,
it was thought that Carajás’ output, given its excellent quality,
would enable the company to meet new demands and also serve
markets already supplied by the mines of the Doce River System,
retaining the reserves of Minas Gerais to be allocated preferentially
to support the Brazilian steel industry.
Carajás Mineral Province
In order to implement the Carajás Iron Project, Eliezer Batista,
then president of Vale, needed the support of the World Bank
(among other institutions), at the time led by Robert McNamara,
former Secretary of State in John F. Kennedy’s government.
Eliezer described McNamara as one of the most intelligent and
fascinating people he had ever met. “No one could convince him
with the sales pitch of a carpet salesman,” he said. “As a banker, he
wanted a return on investment.” Eliezer personally checked every
detail of the project, and four years of work was necessary before
he presented it. Yet in just three meetings with the American, he
got the green light. However, this was not enough to get the project
off the ground.30
Information reported by both the Brazilian and foreign press,
obtained by researchers and non-governmental organizations
engaged in defending the rights of indigenous peoples, showed the
need for the Brazilian government to work together with indigenous
communities. This contributed to the World Bank – one of the
main financers of the Greater Carajás Project31 – imposing certain
conditions on the granting of further resources to continue the
venture. Accordingly, the World Bank indirectly took on the role of
supervising it, representing the interests of the other creditors, and
the Bank’s support would guarantee the success of the initiative’s
implementation.32 From this point on, funding for the Brazilian
government would depend on government actions to ensure the
sustainability of indigenous peoples.33
Occupying the region – with housing, people, commerce and
basic infrastructure – was fundamental to the project’s success.
The eastern portion of the Amazon was considered a region that
was hard to integrate, almost impenetrable. By this time, major
reserves of bauxite, manganese, cassiterite, copper, nickel and gold
had already been discovered in the region, and it would be possible
to harness them together by using the Carajás Iron Project’s
infrastructure.
In February 1978, convinced of the importance of the venture,
the Economic Development Council authorized the construction
of the Carajás Railroad, which began in July, with the building of
the first 82-kilometer stretch. The project was only implemented
more intensively, however, as of 1979, during the government of
João Figueiredo.
From that point onward, Carajás would become CVRD’s toppriority project.
167
31 - Besides the World Bank, with US$305 million, participants in funding the Carajás
Iron Project also included the BNDE, the European Economic Community, Japan and,
later, American commercial banks and the USSR. See more about the topic in Antonini,
Giorgio de. “O Programa Piloto para Proteção das Florestas Tropicais do Brasil (PPG-7) e a
globalização da Amazônia.” Revista Ambiente & Sociedade, vol. XIII, no. 2, pp. 299-313, July to
December 2010 (available at <http://www.scielo.br/pdf/asoc/v13n2/v13n2a06.pdf>).
32 - Regarding this issue, see Marguilis, Sérgio. “O desempenho do governo brasileiro e do
Banco Mundial com relação à questão ambiental do Projeto Ferro Carajás.” IPEA, August
1990. Available at: <http://www.dominiopublico.gov.br/download/texto/td_0193.pdf>.
30 - ISTOÉ Dinheiro, “As 7 lições de Eliezer,” edition 350 of April 19, 2004.
Vale
Our History
33 - See Centro de Tecnologia Mineral (CETEM), Parauapebas (Pará): A mão de ferro do
Brasil na implantação do Programa Grande Carajás.
Vale
Our History
5.6 Docegeo: geological research and technology
168
Three initiatives between the 1950s and 1970s34 marked the
manner in which the Brazilian government – including CVRD –
demonstrated its interest in geological research in the country.
The first initiative, which occurred under Juscelino’s goverment,
in 1957, was the creation of the first Geology course in Brazil at the
Geology School of Porto Alegre. Until then, the work of geologists
was performed by mining engineers. The teaching of Geology at
universities resulted from the activities of the Campaign to Train
Geologists (Campanha de Formação de Geólogos, or Cage). That
same year, geology schools would also be established in São Paulo,
Ouro Preto and Recife. The specific work of geologists, as seen in the
adventure of the discovery of Carajás, was key to the rapid growth
of the mining sector during this period.
Another important initiative was the foundation, in 1969, of the
Mineral Resources Research Company (Companhia de Pesquisa de
Recursos Minerais, or CPRM). Established under the administration
of the Minister of Mines and Energy, Antônio Dias Leite (who had
also been president of Vale), the CPRM had the main mission of
intensifying the harnessing of water and mineral resources in the
country. The CPRM would operate as a service provision company,
performing mining-related work for third parties, carrying out its
own research and, as a finance company, supplying risk capital to
mining companies that requested it.35
34 - The information related to this item was taken from the following works: Fernandes,
Francisco do Rego, (org.), op. cit., vol. 1, pp. 216-227; Machado, Iran. Recursos minerais: política
e sociedade. São Paulo: Edgard Blücher, 1989, pp. 373-376; and Pereira, Diamantino et al.
Geografia, ciência e espaço: o espaço brasileiro. São Paulo: Atual, 1993.
Finally, there was the establishment of Docegeo, which would
unify CVRD’s geological research (by introducing planning and, above
all, technology) and employ some of the country’s best geologists.
Interested in expanding and diversifying its investments in the
mining sector, in July 1971 CVRD established Rio Doce Geologia e
Mineração S.A. (Docegeo). A wholly owned subsidiary, Docegeo was
tasked with exploring and harnessing mineral deposits, both in
Brazil and abroad. The subsidiary’s articles of incorporation also
predicted “searching for, researching and mining solid mineral and
fossil fuel substances, and the distribution and sale of its products,
whether raw, processed or industrialized.” The pioneering age of
geological research – with men driven by instinct, rustic maps,
hammers and courage – was coming to an end. The company
had realized that its productivity would multiply through prior
research and the use of technical apparatus capable of anticipating
discoveries of mineral deposits and their economic value. Docegeo
– as will be seen below – soon set the benchmark for more feasible
exploration of the country’s underground resources. It would also
complement the diversification plan developed by CVRD at the end
of the decade.
According to its articles of incorporation, the new company would
not be restricted to CVRD projects, and could also “participate in other
companies directly or indirectly related to its corporate objectives, as
partner or shareholder,” as well as “provide third parties with any
services related to the aforementioned corporate objective.”36
In practice, the company was the pioneer in mineral prospecting
in the country. Its dedication to geological investigation and
the development of underground sampling and exploration
technologies had a significant effect: three years after establishing
this subsidiary, CVRD would become the world’s leading iron
exporter, accounting for 16% of the seaborne trade in the product.
35 - See “CPRM lança as bases para a modificação de assistência financeira à pesquisa
Samples of ore from Carajás
Mine, Pará, in the 1960s.
Vale
Our History
mineral.” Mineração Metalurgia, August 1979, p. 6, and “A Companhia de Pesquisa e Recursos
Minerais (CPRM) está comemorando seu 2o aniversário,” Mineração Metalurgia, February
1972, p. 38.
36 - Cited by Fernandes, Francisco do Rego (org.), op. cit., vol. 1, p. 219.
Vale
Our History
169
Previous page: camp used by
the Companhia Meridional
de Mineração’s manganese
prospecting work, in Barra
do Buritirama, Marabá, Pará,
in 1968. Left: geologists
McCandless, Hirata, Rigon and
Midleton visiting Docegeo’s camp
in Rio Novo, Pará, in 1976.
170
Headquartered in Rio de Janeiro, Docegeo began operating in
1972 with a workforce of 73 geologists. To determine its subsidiary’s
operational details, CVRD hired the services of consulting firm
Terraservice, owned by American geologist Gene Tolbert, one of
the people responsible for discovering Carajás. The consultancy’s
first measure was to hire foreign geologists, geochemists and
geophysicists in order to train the Brazilian team.
Docegeo’s initial objectives were defined in its First Three Year
Plan for Geological Prospecting (1972-1975), which established the
priority of working with 14 minerals, namely bauxite, beryllium,
cassiterite, lead, copper, chromite, fluorite, phosphate, manganese,
nickel, gold, titanium, tungsten and zinc. Vale wanted more than
just global leadership in iron ore production.
Significant investment was made in the new company. In the
early 1970s, Docegeo had a total of 2,000 employees. By the late
1970s, the subsidiary had 1,200 employees in Belém alone, while a
project was being conducted in the Pelada Mountains of Pará. Besides
geologists and scientists, the company employed professionals with
expertise in aerial and waterway transportation, as well as land
vehicles (jeeps, pickup trucks, and large trucks).
The geological equipment produced in Brazil – probes and drills,
for example – was now obsolete. Domestic industry had not kept up
with the innovations in machinery developed in countries such as
Canada and Australia. Consequently, Docegeo conducted a program
to bring together Brazilian companies and the BNDE, which in
turn, based on this demand, created a funding program for the
technological updating of Brazilian geological machinery.37
The prospecting strategy adopted was very wide-ranging, covering
research into already known deposits, based on negotiations with
concession-holders, surveying of new deposits near known ones,
and the search for new reserves in virgin areas. The priority, however,
was on projects targeting associations of different minerals.
To facilitate its activities on a national scale, between 1971
and 1972, Docegeo formed four regional prospecting districts,
determined in line with planned projects: the Amazon, covering
the North region and Maranhão, headquartered in Belém; the
Center-West, encompassing the states of Goiás, Mato Grosso and
Piauí, headquartered in Goiânia; the Center-East, covering Minas
Gerais, Espírito Santo and Rio de Janeiro, headquartered in Belo
Horizonte; and the East, headquartered in Salvador, to operate
in the Northeast region. Besides these districts, offices were also
opened in Araxá (Minas Gerais) and Cachoeiro do Itapemirim
(Espírito Santo). In 1976, a new Southeast district was formed,
headquartered in São Paulo, extending the company’s activities
towards the south of the country. The latter district was closed
down two years later, however.
Also in 1973, in accordance with the recommendation of the
first National Development Plan, the government approved a
Basic Scientific and Technological Development Plan. Within the
scope of the Ministry of Mines and Energy, this plan prioritized
three projects related to mining: the implementation of CVRD’s
Technological Research Center, to support Docegeo’s geological
prospecting program; stimulation for CVRD’s CPM research
program; and the establishment of the CPRM Research Center on
Fundão Island in Rio de Janeiro, in 1973 and 1974. 38 All of these
projects sought to contribute to removing one of the biggest
obstacles to raising the country’s mineral production: a lack of
expertise in ore processing technology.
In June 1976, due to CVRD’s need to centralize its mineral
research activities, until then conducted independently by CPM and
Docegeo, it established its Mineral Research Superintendent’s Office
(Superintendência de Pesquisas Minerais, or Supem), linked to the
company’s administrative structure. Supem was made responsible
for geological and mineral research in all sectors except iron ore.
Between 1971 and 1978, CVRD transferred around US$82 million
to Docegeo, most of which was invested in the Amazon district.
Major achievements in this district during this period included
the following: the discovery in 1972 and 1973 of significant bauxite
deposits in Paragominas, Almeirim and the Jutaí Mountains in Pará,
leading CVRD to implement an aluminum production complex
in the north of the country; the discovery in 1974 and 1975 of
cassiterite deposits in Antônio Vicente, near São Fidélis do Xingu
in Pará; geological prospecting work conducted in the AraguaiaXingu zone in Pará, where occurrences of copper, lead and zinc
were found; an experimental mining project involving gold deposits
found in 1976 in the Andorinhas Mountains to the south of the
Carajás Mountains; and the sale of gold extracted by prospectors in
the Pelada Mountains region, sold to Caixa Econômica Federal and
the Brazilian Central Bank.39 As of 1977, the Amazon district took
on the work of assessing manganese and copper deposits recently
discovered in the Carajás region, previously performed by AMZA.
Docegeo’s activities in the Center-East district centered on
evaluating the Tapira and Salitre phosphate and titanium reserves
in Minas Gerais, and identifying the limestone deposits of Cachoeiro
do Itapemirim in Espírito Santo.
The Southeast district, during its two years of existence,
contributed through the discovery of some promising occurrences
of lead and zinc, which were transferred to the Votorantim and
Banespa groups, and an evaluation of copper and molybdenum
deposits detected in Caçapava do Sul in the state of Rio Grande
do Sul.
Overall, the work conducted by Docegeo during the 1970s allowed
CVRD to add more than 35 new mineral deposits to its portfolio,
containing 11 types of minerals and located in 15 different parts
of Brazil. Finally, it is worth noting the valuable work performed
by CVRD’s Technological Research Department (Departamento de
Pesquisas Tecnológicas, or Deteg), based at the “km 14” point on the
BR-262 highway 25 kilometers from Belo Horizonte. Deteg’s work
enabled the economic exploitation of mineral deposits discovered
and studied by Docegeo. Deteg’s main achievements in the 1970s
included technological capacity-building projects to make full
use of the company’s iron reserves in the Iron Quadrangle, and
the development of processes to concentrate phosphate rock
and anatase ore from the Tapira and Salitre deposits and for the
mechanical, metallurgical and chemical processing of bauxite,
nickel, manganese, copper and gold deposits discovered in the
Carajás region.
Between 1969 and 1973, CVRD established around 30 small
subsidiaries. At the end of the decade, the CVRD group, including
AMZA, Docegeo and this set of subsidiaries, had managed to
significantly expand its mineral rights, holding 1,151 research
permits for metallic and non-metallic minerals in 13 Brazilian
states, covering a total of 3,914 hectares.
As will be seen in the following chapters, until 2003, Docegeo
would be the company’s main research unit. From that point
onwards, new technology projects and institutes would be
constructed, continuing and extending the work begun by geologists
in the late 1960s.
5.7 Going beyond iron
At the end of the 1960s,40 Vale was interested in expanding and,
above all, diversifying its activities beyond iron ore production.
At that time, the company’s leaders believed that Vale’s path
40 - The basic sources used in this study on CVRD’s diversification policy were the
37 - Luiz Antonio Godoy, lawyer and former director of Docegeo and the Vale Foundation,
38 - See Presidência da República, Plano Básico de Desenvolvimento Científico e Tecnológico,
39 - The permit to sell gold from the Pelada Mountains was granted exclusively to Docegeo
in an exclusive interview with Vale.
1973/1974, pp. 75-76.
by the federal government.
Vale
Our History
following: Fernandes, Francisco do Rego (org.), op. cit., vol. 1, pp. 32-38; Abranches, Sérgio
and Dain, Sulamis, op. cit., pp. 69-95; Board of Directors’ Reports, 1969-1978; and Kury, Mário
da Gama, op. cit., pp. 70-120.
Vale
Our History
171
to growth could not be based exclusively on the sale of iron ore.
The implementation of this policy, however, was delayed until the
end of the next decade, given that the company’s resources were
committed to the expansion of its mine-railroad-port complex,
especially the construction of the Port of Tubarão. Docegeo was an
important driver in this area.
CVRD’s first diversification project was the establishment in 1967
of Florestas Rio Doce S.A., a subsidiary focusing on reforestation
activities in Minas Gerais. In 1969, the company set up another
subsidiary with the same purpose, this time in Espírito Santo: Rio
Doce Madeiras S.A. (Docemade). Over the next 10 years, driven by
the vigorous expansion of its iron ore sales, CVRD multiplied its
areas of activity, especially in the mining and metallurgical sectors,
becoming involved simultaneously in various projects to produce
bauxite, alumina, aluminum, manganese, titanium, phosphates/
fertilizers, and timber/pulp.
Alongside these ventures, which diversified CVRD horizontally,
new vertical investment projects were also developed to process
and industrialize the company’s iron ore output, involving the
manufacture of pellets, magnetic ferrites and steel products.41 From
the start, this vertical diversification policy was also an evident
priority for the new sectors that CVRD entered.
To support the company in executing its diversification program,
Rio Doce Engenharia e Planejamento (RDEP) was established in
1971 to provide technical assistance in the field of engineering.
This subsidiary was tasked with conducting feasibility studies and
managing new industrial projects. (This company was closed down
in 1979.) In December 1976, CVRD set up another subsidiary, Rio Doce
International Finance Ltd. (RDIF), headquartered in Georgetown,
172
41 - In fact, CVRD’s first attempts to develop its activities vertically, represented by
CVRD employee on top of
a pile of iron ore pellets at
Tubarão Maritime Terminal
in Vitória, Espírito Santo.
Vale
Our History
the establishment of Companhia Siderúrgica Vatu and Beneficiamento de Itabirito S.A.
(Benita), did not progress far. In 1968, Vale decided to liquidate Vatu, in line with guidance
from the federal government (cf. Board of Directors’ Report, 1968, p. 43). Benita never started
up operating activities “given that the company itself developed suitable processes for
concentrating itabirites” (cf. Board of Directors’ Report, 1970, n.p.).
Guyana, to provide financial and marketing consultancy services.
RFID was directly controlled and 90% owned by CVRD. The remaining
shares in RFID were owned by group subsidiaries Rio Doce Europa
(5%) and Seamar Shipping Corporation (5%).
CVRD controlled some of its new projects exclusively through
its subsidiaries. Most of the time, however, it opted to establish
joint ventures with private Brazilian companies and foreign groups
with which it already had commercial relationships. CVRD always
ensured it was the majority partner in such ventures, but they were
given the autonomy to take strategic and operational decisions in a
fast, dynamic manner.
A number of factors justified this new corporate policy. On the
one hand, it had become necessary to “dilute the risks of enormous
investments focused on a single export product.”42 On the other
hand, the massive expansion in the company’s iron ore exports in
the first half of the 1970s had generated more resources than could
be reinvested in an economically feasible way in its core activities.
CVRD’s strategy seems to have been determined much more by
market considerations than by the need for capital or technology,
although these factors were also important. The entry of external
capital enabled the simultaneous development of various projects,
which generally involved heavy investment and long maturity
periods. For foreign investors, in turn, the establishment of joint
ventures with the Brazilian state-owned enterprise was of interest,
above all, as a means of guaranteeing the regular supply of raw
materials and basic inputs for their plants and reducing their costs
of production.
This explains CVRD’s partnerships with business groups from
Japan, its main iron ore customer, to jointly develop projects
directly related to the Japanese economy’s needs (aluminum,
pellets and pulp).
42 - See CVRD, Divisão de Desenvolvimento (Development Division), Relatório Decenal, 19621972, O Minério, May 1973, cited by Abranches, Sérgio and Dain, Sulamis, op. cit., p. 83.
Vale
Our History
173
For foreign investors, the establishment of joint ventures
with the Brazilian company was of interest, mainly
as a means of guaranteeing the regular supply of raw
materials and basic inputs for their industry
174
175
Finally, CVRD’s diversification policy aimed to serve government
interests. In the Brazilian government’s opinion, the experience
acquired by the company in mining, transportation and foreign
trade, as well as its elevated status outside the country, needed to
be applied to attract foreign investment and expand exports.
Accordingly, besides operating as a profit-making enterprise,
CVRD also played a strategic role in implementing national
development plans and executing Brazil’s mining policy.43
Beginning in 1974, CVRD’s diversification projects acquired a
growing weight in its investment program. In the company’s budget
for the 1976-1980 five-year period, such projects were allocated
32.7% of all its planned investment for 1976. As of 1978, more money
was invested in diversification initiatives than in the expansion of
iron ore production. The most favored sector was aluminum, which
received 30% of the diversification program’s investments in 1976
and 1978, slightly more than the Carajás Iron Project.
43 - See Mascarenhas, Raymundo Pereira, “Conferência na ESG,” September 1970, cited by
Abranches, Sérgio and Dain, Sulamis, op. cit., p. 84.
Vale
Our History
This trend would be reversed at the end of the decade due to
a number of internal and external factors. On the one hand, the
decline in CVRD’s profits from iron ore sales, caused by a downturn
in the global steel industry, reduced its investment capacity. On
the other hand, a worsening of the international economic crisis
limited the possibility of raising new funds abroad, aggravating the
company’s financial situation and compromising the development
of its diversification projects. Given this situation, as of 1979,
CVRD would be pressured by the government led by General
João Figueiredo to review its investment program, concentrating
resources on mineral extraction ventures (especially the Carajás
Iron Project) and transferring control of some of its projects to the
private sector.
Visit by technicians from Nippon Steel, during the filing
of ore samples from Cauê Mine, in Minas Gerais.
Vale
Our History